Isramart : Carbon trading not clearing the air

Isramart news:


In the last week alone, it has been at the heart of a major funding dispute with China and political chaos in Australia. But despite its growing importance, the world of carbon trading remains opaque, almost unknown by the average investor even as it becomes an enormous global industry.

At its heart, carbon trading is a simple business: Companies have caps on the amount of greenhouse-gas emissions they are allowed to make, for which they receive "credits." If they exceed their emission caps, they can buy credits from other companies that are emitting below their caps, providing motivation for everyone to invest in greener technologies and reduce emissions.

That is where the simplicity ends. In North America and much of the rest of the world, there is no harmonized emissions-trading system, and no one really knows what that system will look like once governments take a more active role in regulating emissions (the European Union has a system, but there are plenty of questions about how effective it is.)

Even without established cap-and-trade in North America, a wide number of public-and private-sector ventures are up and running. It is proof that entrepreneurs recognize that carbon trading is the future, and everyone from Alberta farmers to U.S. alternative energy producers are benefiting.

The carbon market is growing with staggering speed.

In 2002, the World Bank estimated that 32 million metric tonnes of carbon emissions were traded around the world, worth about US$100-million. Bill Clifton, commissioner of the U.S. Commodity Futures Trading Commission, said in a recent speech that in 2008, 4.8 billion metric tonnes were traded with a total dollar value of US$126-billion.

That works out to an annual growth rate of more than 300%, and that is before the U.S. Federal government steps in with some kind of carbon program. Experts have suggested the carbon market could be worth US$2-trillion or US$3-trillion a year in short order, dwarfing even the oil market.

"Make no mistake, these carbon markets can be the world's largest commodity markets in a few short years," Mr. Clifton said.

For investors, the carbontrading market offers some opportunities, but a combination of government uncertainty and the sharpest global downturn in decades makes it a dicey proposition.

Carbon prices have collapsed over the last year, especially in North America, where trading is voluntary.

Part of the reason is economics -- when a recession hits, there is less industrial activity and companies emit less. The other factor is political, as many companies do not want to buy voluntary carbon credits when it is unclear how an eventual government-run system will work.

The main vehicle to buy and sell carbon credits in North America is the Chicago Climate Exchange (CCX), where prices have plummeted from more than US$7 per tonne last year to just US15¢.

The exchange still boasts a blue-chip base of large emitters, including Canadian companies such as Domtar Corp. and Potash Corp. of Saskatchewan Inc. They see the CCX as a testing ground to prepare for real regulation in the future.

Read more: http://www.financialpost.com/story.html?id=2305713#ixzz0ZCK0LPP1
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